Regulatory comment letters in mergers and acquisitions

69 Pages Posted: 4 Apr 2019 Last revised: 7 May 2021

See all articles by Junzi Zhang

Junzi Zhang

City University London - Sir John Cass Business School

Pawel Bilinski

City University London - Sir John Cass Business School

Ivana Raonic

City University London - Sir John Cass Business School

James Ryans

London Business School

Date Written: September 4, 2019

Abstract

This study examines the importance of enforcing acquisition disclosure regulation on price reactions to M&A announcements. Using a novel sample of regulatory comment letters on acquisition filings by public companies in China, we document that acquisitions targeted by the regulator have lower bidder announcement returns and the effect is greater when the comment letters have more acquisition-specific comments, compared to those on general accounting and governance issues. Transactions with M&A comment letters are lower quality transactions obfuscated by weaker disclosure evidenced by a lower likelihood of the deal closing, and if the deal does close, lower post-deal firm profitability and a greater likelihood of subsequent goodwill impairment. The results highlight that regulatory enforcement of acquisition disclosures is useful to investors.

Keywords: comment letters, M&A, regulatory monitoring, monitoring mechanism

JEL Classification: G34, M48, M41

Suggested Citation

Zhang, Junzi and Bilinski, Pawel and Raonic, Ivana and Ryans, James, Regulatory comment letters in mergers and acquisitions (September 4, 2019). Available at SSRN: https://ssrn.com/abstract=3352597 or http://dx.doi.org/10.2139/ssrn.3352597

Junzi Zhang (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+447377796925 (Phone)

HOME PAGE: http://https://www.cass.city.ac.uk/faculties-and-research/students/junzi-zhang

Pawel Bilinski

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Ivana Raonic

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

James Ryans

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

HOME PAGE: http://www.london.edu

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